Healthcare Reform: Employer-Friendly Changes
The Patient Protection and Affordable Care Act (PPACA) was signed into law in March, 2010. Encompassing major healthcare reform measures, this act aims to do the following:
- Establish a mandate for nearly all legal residents of the United States to obtain health insurance.
- Create insurance exchanges through which certain individuals and families will receive federal subsidies to reduce the cost of purchasing health insurance coverage.
- Significantly expand eligibility for Medicaid.
- Permanently reduce the growth of Medicare’s payment rates for most services.
- Impose an excise tax on health insurance plans with relatively high premiums.
- Impose certain taxes on individuals and families with relatively high income.
- Make various other changes to the federal tax code, Medicare, Medicaid, and other programs.
The PPACA was heavily debated prior to passing, and continues to be contested and revised today. Although the original legislation could not be deemed as “employer- friendly” for companies with more the 50 full-time employees, it is important to recognize that some guidance and revisions coming down from the federal government are making PPACA somewhat more employer-friendly. What follows are five changes in the legislation and their affect on you as an employer.
Delay Of Cadillac Tax
The “Cadillac tax” is designed to curtail employers from offering rich benefits plans which may encourage over- utilization of medical services. This item was among the first to receive an alteration that was favorable for employers. The original PPACA legislation as passed implemented the excise tax beginning in 2013. The Reconciliation Act delayed the implementation of the 40% excise tax on high cost health plans until 2018.
This five year reprieve from the excise tax eliminated approximately 80% of the estimated amount of tax to be paid by employers from the original Congressional Budget Office scoring.
Free Choice Voucher Retracted
The “free choice voucher” program originally outlined in the PPACA required employers to grant vouchers to employees whose premium cost fell between 8 and 9.8 percent of the employee’s household income. The employee had the choice to use the voucher to purchase health insurance through an exchange or go with the employer-sponsored plan. If the employee elected to purchase coverage through the exchange, the employer would remit the dollars they would have contributed to the employee’s coverage within the employer plan to the exchange.
In April of 2011 this program was repealed, eliminating the administrative and financial burden it would have created for employers.
Class Act Replealed
The Community Living Assistance Services and Support (CLASS) act was put into law as part of PPACA to create an insurance program to cover costs of long-term care. After careful review, the CLASS act was repealed on October 16, 2011. Employers will no longer be required to offer this coverage.
Delay Of W-2 Reporting
Initial legislation under PPACA required employers to begin reporting the value of health coverage they provide to each employee on the employee’s annual W-2 form in 2011. Although still applicable, the implementation has been delayed. It is important to note that health insurance benefits are not being taxed. However, reporting the cost of health insurance on W-2s is making some suspicious that it could be a path to taxation.
Large employers must report the cost of health insurance coverage on 2012 Forms W-2. Small employers (those that filed 250 or fewer Forms W-2 for the 2011 tax year) must report this information on their 2013 Forms W-2.
Safe Harbor Contributions Released
A provision under PPACA will require an employer with over 50 full-time employees to provide major medical coverage to full-time employees or else pay a penalty. The coverage must also be deemed affordable according to the legislation. If an employee’s contribution to the plan exceeds 9.5 percent of the employee’s household income, then the employee purchases coverage through the exchange and the employer pays a $3000 annual penalty for every employee that purchases subsidized coverage through the exchange.
Due to push back stating that employers have no way of knowing employees’ total household income, the IRS added a safe harbor to this provision. Employers may now calculate an employee’s W-2 wages rather than household income. If the employee contribution amount for single coverage under the employer health plan is less than 9.5 percent of the employee’s W-2 earnings, then the employer has satisfied its affordability requirement and does not have to gather household income information.
As an employer, it is important to be educated on healthcare reform measures and modifications to them.